Fleck: Divided by Geopolitics, United by Bubble's Bursting
By Bill Fleckenstein
03/12/2003 17:32
Index Close Change
Dow 7552.07 +28.01
S&P 500 804.19 +3.46
Nasdaq Composite 1279.24 +7.77
Nasdaq 100 970.54 +11.72
Russell 2000 345.94 -1.09
Semiconductor Index (SOX) 287.45 +8.40
Bank Index 674.36 -1.43
Amex Gold Bugs Index 116.38 -0.27
Dow Transports 1950.65 +8.46
Dow Utilities 196.84 +0.91
NYSE advance-decline -489 +215
Nikkei 225 7943.04 +80.61
10-year Treasury Bond 3.59% +0.003
Overnight, Japan managed a small bounce, while Europe was weak once again (more about that in a moment). After an active night, our stock index futures had a spike this morning on yet another rumor of bin Laden's capture, but they were lower by the time the market opened. We immediately had a rally that immediately fizzled, such that a couple hours into the day, most nontech stocks were under pressure, while tech was holding in pretty well. That description of the early going should sound familiar, because it's basically a replay of what we have seen for so many days in a row.
SOX Sprouts Wings : The market slid steadily until about two hours to go, at which point the Dow and S&P were down about 1%, and the Nasdaq was down about 2%. From there we had a spirited rally that took us to new highs on the day, which were also the prices you see in the box scores. With the exception of some financials, the late-day turnaround managed to get almost everything green, though the percentage moves were pretty modest, notwithstanding a few tech stocks. A quick glimpse will show that the SOX was the place to be. After today's manly performance, it is now basically flat on the year.
So, the battle continues. Will semiconductor and other tech stocks save western civilization, or will there be a last smashing in tech stocks to catch up with S&P- and Dow-oriented names before we have our war rally? I don't know the answer to that question, nor do I have much of a vested interest in which way things go at the moment.
As I have stated several times in the past couple of weeks, I continue to have virtually no shorts. In any case, I find it remarkable to watch all these different markets go their own way, with seemingly no impact on each other. This is as chaotic an environment as I can remember having seen. Perhaps tomorrow, we will get the U.N. vote, and with it, some clarity on the geopolitical situation. One can only hope.
Away from stocks, the metals were under pressure yet again, with both gold and silver down about 1%. Fixed income was flat and the dollar was a touch stronger.
Old-World Weariness : Turning back to Europe, I find it rather stunning that the markets there are already down so much this year. Amsterdam is the worst, down nearly 32%, but Germany has lost 24% and France 22%. Meanwhile, in the midst of all this carnage, the Nasdaq is down only 5%, and the mighty, mighty SOX is down just half that, as of this morning. So, oddly enough, we have been able to hold up better thus far, even though our markets appear to be more expensive, and we are the ones with the weaker currency.
I am not an expert on the European stock markets, but I find it interesting that the extraordinary destruction there, due to the bubble's unwinding, has attracted relatively little attention. Understandably, the focus has been on war angst, but once war begins and the heads-of-state squabbling is behind us, people will have to deal with the economy and the markets. This is why I continue to think that later this year, when the fallout from the bubble emerges as our true problem, that recognition will set in motion a rather large adjustment lower in stock prices (even though I still expect a war-related relief rally).
Red Robin Sees Its Shadow : Meanwhile, people have yet to connect the dots. Pointing to a slightly alarming trend that is percolating below the surface, a story on Bloomberg yesterday reported that margin debt has increased for four months in a row, an interval that coincides with the longest streak of gains since the bear market started. To add to my comments about why we are not "there" yet, here is another item you can put in the category of things that don't happen at market bottoms.
Horse-of-a-Different-Color Coda : Finally, a follow-up to my thoughts on derivatives . Though Warren Buffett did not draw the distinction I am about to make, I assume he would agree with me. When discussing the derivatives market, I did not mean to imply that there is a problem with exchange-traded derivatives, aka stock options, futures, etc. These do not have the same potential for abuse as "over-the-counter" derivatives, because the counterparty risk is addressed by the exchanges.
Also, since prices are set in a marketplace, valuation is transparent, as opposed to OTC derivatives, where no one knows what the real values are. There, prices are a function of guesswork and people's ability to make things up. And of course, it is in this market where exposure and the potential for cascading risk are greatest. |
